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Facebook trials new Deals platform as Australian group buying sector revenue hits $377m

Wednesday, 27 April 2011 | By Patrick Stafford

Social networking giant Facebook has launched a trial of its new Deals program, with users in a select number of cities now able to purchase discounts for various experiences and products in an attempt to challenge the growth of group-buying giants Groupon and Living Social.

The news comes as research from IBISWorld shows spending in the group buying industry has soared to $377 million in 2010-11 from essentially nothing in the previous year.

As reported in the New York Times, Facebook has launched a trial of the previously announced service in Atlanta, Austin, Dallas, San Diego and San Francisco. Users are able to "like" the Deals services on Facebook, which then allows deals to show up in their news feed.

Facebook claims that as the service grows, more deals will be integrated into the site itself, acknowledging that the best deals are ones that grow virally and are shared among friends and family.

The new deals service represents another possible source of revenue for the company, which will allow deals to be purchased using Facebook Credits – the company's digital currency.

"You can receive Facebook deals via email," Facebook director of local Emily White told the New York Times. "But if there is a deal that is good for you, it will likely show up in your news feed at some point in the day."

The announcement comes as the group-buying scene continues to explode, with major companies wanting to get in on the action. With a user-base nearing 600 million members, Facebook is well positioned to take advantage of any deals service as the most successful require substantial email marketing lists.

Telsyte senior research manager Yip says the social network is in a good way to challenge Groupon, Living Social and other competitors.

"In the past three months, our research shows that we've seen an increase in group buying database building on Facebook. Campaigns are being run on there, rather than on Twitter."

"Facebook deals is very much a strong prospect because group buying marketing is all based on there right now. I think the main challenge will be getting major merchants on board and getting into local markets there."

However, he says that if the Deals service were to expand into Australia, it may have more problems as the market is already well saturated here.

"There is a real challenge coming into Australia here. We're around 15 months into the market here, perhaps more, and most of the large sites are generating a substantial amount of revenue."

While Yip says Facebook's infrastructure is sound and the company operates very well in dozens of countries, expanding deals into those countries may be a different challenge.

"The Facebook infrastructure is there, to be sure, but it's about getting the merchants on board. And not having a strong local presence in certain areas will be a challenge."

Spreets chief executive Dean McEvoy says while Facebook is well positioned to open a deals platform, they have some difficulties ahead of them.

"I think if they are smart, the way they will work it will be a connection for other deals and so on."

McEvoy says while Facebook has the user base to show off deals, he also says depending too much on them will change what the site is about.

"They're an advertising business, if they go out and start getting deals they're changing who they are in. If you're checking in on Facebook somewhere and there happens to be a good deal nearby, that could work. But if they pushed me deals, it may not particularly work well."

Meanwhile, new research from IBISWorld shows the group buying industry in Australia is definitely not slowing down any time soon, with general manager Robert Bryant saying the industry now accounts for 1.8% of total online retail spending.

"Offering three major selling propositions – group voucher discounts, clearance goods and travel for limited periods – this sector is now the fastest growing retail platform in Australia," Bryant says.

Travel and accommodation deals take up the majority of all sales at 29.3%, followed by retail goods at 29.2%, beauty products at 14%, dining out at 10.6% and leisure activities at 8%. Sport and fitness deals only make up 1.5% of all sales.

Catch of the Day has been named as the biggest player with revenue of $110 million, IBISWorld says. The company adds that with intense competition growing, a merger is likely within the next couple of years as the "general market is somewhat saturated".

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